The first quarter of 2019 saw 1,081 packaging transactions worth approximately USD 802 billion, compared to 1,148 in Q1 2018 (USD 944 billion), indicating that the packaging M&A market is waning. However certain segments within the packaging space have continued…
The first quarter of 2019 saw 1,081 packaging transactions worth approximately USD 802 billion, compared to 1,148 in Q1 2018 (USD 944 billion), indicating that the packaging M&A market is waning. However certain segments within the packaging space have continued to see a flurry of deal activity. The rigid packaging market for instance, recorded more transactions in Q1 2019 than in Q1 2018, and accounted for more than 43 percent of announced transactions, according to EY’s 2019 Packaging Recap. Key trends in the industry that are driving deal activity include a focus on sustainability, the rising demand for portable, single-serve packaging for the F&B sector, and R&D aimed at developing lighter, durable packaging solutions for the e-commerce industry.
As a result, certain segments of the packaging industry are getting a lot more attention from acquirers whilst deal activity remains subdued in others. McKinsey has highlighted that packaging companies need to prioritise investing in R&D and innovation in order to keep up with changing consumer and industry trends. Companies also need to pursue M&A to ensure their relevance in the market as well as divest less profitable assets. Finally, these companies need to focus on centering their product mix around sustainability.
The global market for sustainable packaging is projected to expand at a stellar rate in the coming decade as regulatory bodies, governments and consumers push corporations to adopt environmentally friendly packaging practices. The sustainable packaging market, which includes recycled packaging, reusable packaging and degradable packaging, was valued at USD 225 billion in 2018, according to Mordor Intelligence. Its value is expected to reach USD 297 billion by 2024 with an anticipated CAGR of 6 percent through 2019 to 2024.
In a recent survey of 250 consumer packaged goods companies that included food and beverage, pet products, healthcare and personal care companies, conducted by L.E.K. Consulting, 90 percent of brand owners said that packaging was critical to their bottom line in an increasingly competitive landscape in a market where consumer tastes are rapidly changing. Around 85 percent said that they had made at least one significant change to packaging substrate material to aid the ease of recycling. Respondents expected the value of packaging containing biodegradable, recycled or compostable material to grow by 30 to 40 percent in the next two years. Over half the respondents also said their companies were developing more single-serve packaging formats in keeping with consumer demand.
E-commerce packaging companies are seeking to augment existing products with innovative, lighter, sustainable and durable materials that can reduce costs across the e-commerce value chain. Global e-commerce sales grew by 18 percent just last year and it is estimated that close to 2 billion people will have shopped online in the year 2019. Mordor Intelligence expects that the e-commerce packaging market will register a CAGR of 15 percent through 2019 to 2024. Several new entrants in the market have intensified market competition. Increasing market fragmentation in this segment is indicative of a wave of consolidations in the near future. Given the increasing fragmentation of the industry and rising levels of dry powder, the global packaging M&A market may see an upward trajectory in the coming year.
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